Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night in the largest bank failure in American history.

Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual to JPMorgan Chase. The remainder of WaMu, the nation’s largest savings and loan, will be operated by the government. Shareholders and some bondholders will be wiped out. WaMu deposits are guaranteed by the Federal Deposit Insurance Corporation up to the $100,000 limit for each account. WaMu customers are unlikely to be affected.

Washington Mutual was the 6th largest bank in America, and had $310 billion in assets. It operates primarily in the west coast and hence was heavily exposed to the housing bubble areas of California.

Just to show that I'm not the only dumb investor around ;) private equity group TPG invested $7 billion early this year, only to see it vaporize completely. WaMu as it is sometimes called was also one of contarian investor David Dreman's favourite investments.

I hate to bring this up but JP Morgan Chase is not only becoming a too-large-to-fail bank, but also a too-big-to-be-rescued-by-the-US-government bank. JP Morgan Chase has the largest derivatives book of any bank in the world, and if it something happens, America is going to have to seek help from outside--an unthinkable scenario that will significantly weaken its political power. I am not a fan of these banks the size of a star system.